YVONNE GONZALEZ ROGERS, District Judge.
Lead plaintiff Louisiana Sheriffs' Pension & Relief Fund brings this securities class action litigation alleging false and misleading statements and omissions between October 27, 2018 and January 9, 2018 (the "Class Period"), against defendants Intel Corporation ("Intel," or the "Company"), and three individual defendants, namely Brian M. Krzanich (former Chief Executive Officer or "CEO"), Robert H. Swan (Chief Financial Officer or "CFO"), and Navin Shenoy (Executive Vice-President). Specifically, plaintiff raises the following causes of action: (i) violation of Section 10(b) of the Securities Exchange Act ("Exchange Act") against all defendants and Rule 10b-5 promulgated thereunder and (ii) violation of Section 20(a) of the Exchange Act against the individual defendants.
Defendants have filed a motion to dismiss, pursuant to Federal Rules of Civil Procedure 8(a), 9(b), and 12(b)(6), and the Private Securities Litigation Reform Act of 1995 ("PSLRA"). (See Defendants' Motion to Dismiss Consolidated Complaint ("MTD"), Dkt. No. 67.) Therein, defendants challenge plaintiff's Section 10(b) claim on two grounds. First, plaintiff fails to identify any statements which were false or misleading when made. Second, plaintiff has not established a strong inference of scienter. With regard to plaintiff's Section 20(a) claim against the individual defendants, defendants argue that plaintiff has not shown an underlying predicate violation under Section 10(b) or facts establishing the element of control as to Shenoy.
Having considered the papers submitted and the pleadings in this action, the hearing held on March 12, 2019, and for the reasons set forth below, the Court hereby
The facts at issue in this case, as pleaded in plaintiff's Consolidated Class Action Complaint ("CCAC"), (Dkt. No. 57), are well known to the parties. Relevant allegations from the CCAC, and facts based on judicially noticeable documents and documents incorporated by reference in the CCAC, are set forth below.
Intel is one of the world's largest manufacturers of processors, chipsets, and related computer components. (CCAC ¶ 2.) Intel provides processors to more than 90 percent of all personal computers and servers supporting the internet and business operations. (Id.) Sales of processors and chipsets account for over 80 percent of Intel's total annual revenue. (Id.) These components are integral to the functioning of computers, servers, smartphones, tablets, and networking and communications products. (Id. ¶ 23.)
Specifically, Intel typically offers its products as "platforms." (Id. ¶ 25.) A platform consists of a microprocessor and chipset. (Id.) A microprocessor is a computer processor on a microchip and is the main component of all computers, often referred to as the "brain" of a computer. (Id.) It is critical to a computer's performance and processing speed. (Id.) The key functional block of a microprocessor is the Central Processing Unit, or "CPU." (Id.)
Due to the "widespread use" of Intel's products and the "high profile of [its] commercial security products," Intel has warned its investors of associated cybersecurity and privacy risks. In its 2016 10-K filed in February 2017, Intel stated:
(Defendants' Motion to Dismiss Consolidated Complaint; Errata ("Amended Exhibit 9" or "2016 Form 10-K") at 20, Dkt. No. 81.)
On June 1, 2017, an analyst from Google's Project Zero—which is dedicated to finding vulnerabilities in Google software and any software or hardware employed by its users—notified Intel and two other chipmakers (Advanced Micro Devices, Inc. and ARM Holdings) of a "CPU security issue that affects processors," later known as "Spectre." (Id. ¶ 52; see also id. ¶ 45.) Later in June, Google Project Zero identified a second vulnerability that became known as "Meltdown" and which "allows a hacker to move the highly sensitive data stored in kernel memory to the cache memory." (Id. ¶ 55; see also id. ¶ 54.)
After Google Project Zero informed Intel of the Spectre and Meltdown vulnerabilities in June 2017, the Company conducted a "detailed analysis" of the vulnerabilities in June and July of 2017 that confirmed their existence. (Id. ¶ 64.) Pursuant to Google Project Zero's standard protocol, whereby it affords companies like Intel 90 days to either disclose or remediate a threat, (Id. ¶ 46),
Intel worked for "months" with a limited group of industry collaborators attempting to develop mitigations, test them, and prepare releases. (Id. ¶ 66 (emphasis removed).) Its efforts involved "multiple microprocessor vendors, operating system vendors[,] and [Original Equipment Manufacturers (`OEM')] around the world" working to understand the issue and "to develop the system software updates, to develop the firmware[,] and to integrate and test those things." (Id. ¶ 110 (internal quotation marks omitted).)
In the meantime, Intel did not inform the National Security Agency, the Department of Homeland Security, the United States Computer Emergency Readiness Team ("US-CERT"), or the CERT Coordination Center ("CERT/CC") about Spectre or Meltdown even though such government agencies rely on computers, servers, and networks powered by Intel processors. (Id. ¶¶ 67, 70.) However, the Company informed select clients in or around November 2017. (Id. ¶ 70.)
Given the threat that Spectre and Meltdown posed to almost all of Intel's microprocessors, a former Intel security engineer has no doubt that Intel's CEO would have been informed of the problems. (Id. ¶ 73.) Moreover, given that Spectre and Meltdown crossed so many product lines at Intel, the engineer expects that Intel's CEO and CFO would have reviewed and approved the disclosure plan for Spectre and Meltdown. (Id.) Because the Data Center Group was one of the units directly impacted, defendant Shenoy, as head of the same, would have participated in discussions regarding potential mitigations and their impacts on performance and would have made the "final call" on which mitigations to deploy. (Id. ¶ 75 (internal quotation marks omitted).) Shenoy and other senior business leaders, in turn, would have provided Krzanich, Swan, and other corporate executives with weekly or bi-weekly reports. (Id.)
On November 29, 2017, the same day that Intel informed its OEM partners about Spectre, Krzanich sold 890,000 shares of Intel stock for nearly $40 million, netting almost $25 million in profits. (Id. ¶ 100.) This amounted to 100% of the shares he could sell under the Company's by laws, 80% of his total personal Intel holdings, and more than ten times greater than any other sale in the previous two years. (Id.) Krzanich sold his shares under a Rule 10b5-1 plan that he modified 30 days before he unloaded his shares. (Id. ¶ 102.)
Although Intel and market participants had initially planned to disclose the existence of the vulnerabilities and deploy the mitigations on January 9, 2018, on January 2, 2018, British technology website The Register reported that researchers had identified Meltdown. (Id. ¶ 105.) On this news, Intel's stock plunged, wiping out billions of dollars in market capitalization. (Id. ¶ 106.) The following day, Intel admitted that it had previously been made aware of Spectre and Meltdown but explained that, due to its "commit[ment] to the industry best practice of responsible disclosure of potential security issues," it "had planned to disclose the issue next week when more software and firmware updates w[ould] be available." (Xiao Decl. Exh. 10 at 1.)
That same day, Krzanich explained in an interview that Intel had been working with all of the Company's industry partners, including operating system vendors and OEMs, to patch and resolve the problem. (CCAC ¶ 109.) He assured the public that "we believe we have the right fixes in place. We've been testing those fixes and making sure that we understand how to implement those." (Id. (internal quotation marks omitted).) Intel's stock price fell another 2%, erasing additional billions of dollars in market capitalization. (Id. ¶ 113.)
On January 4, 2018, Intel issued a press release, announcing that the Company had developed and was rapidly issuing updates for all types of Intel-based computers systems that render those systems immune from both the Spectre and Meltdown exploits. (Id. ¶ 114.) Intel further represented that it "continues to believe that the performance impact of these updates is highly workload-dependent and, for the average computer user, should not be significant and will be mitigated over time." (Id. (internal quotation marks omitted).)
On January 8, 2018, Krzanich acknowledged that fixes for Spectre and Meltdown would slow the performance of processors and that the problem may be more pervasive than defendants originally represented. (Id. ¶ 115.) Intel's customers and independent experts corroborated the significant performance degradation the patches caused. (Id. ¶¶ 114, 117, 120.) For example, on January 9, 2018, Microsoft released data showing that the patches may "significant[ly]" slow down the performance of certain services and some personal computers. (Id. ¶ 117.) On this news, Intel's stock price declined another 2.5%, a market capitalization loss of $5.2 billion. (Id. ¶ 118.) A prominent software engineer characterized Intel's patches as "COMPLETE AND UTTER GARGBAGE." (Id. ¶ 124 (emphasis in original).) Intel's stock price fell another 2.6% on January 10, 2018, a market capitalization loss of $5.2 billion. (Id. at ¶ 122.)
Plaintiff alleges that Spectre and Meltdown exploit fundamental design defects in Intel's processors. The defects can only be partially fixed, and at substantial cost to performance. The only effective long-term fix for Spectre is entirely redesigning the chips; it cannot be mitigated by installing a patch of software code on a computer's operating system. (Id. ¶¶ 59, 60.) As one researcher put it, the threat from Spectre is "going to live with us for decades." (Id. ¶ 60 (internal quotation marks omitted).) The Meltdown flaw can be mitigated with a patch, but the patch significantly impacts and slows down computer performance. (Id. ¶ 62.) One such fix, known as "Kernel Page Table Isolation," reduces performance by up to 30 percent. (Id.)
In the aftermath, Intel continued to struggle with Meltdown and Spectre. A former Intel leader explained that there were 135 or more malware items meant to exploit Spectre, Meltdown, and issues with the patches. (Id. ¶ 125.) In May 2018, Intel likewise confirmed reports of eight additional threats from the next generation of Spectre, each of which requires its own patches. (Id. ¶ 127.) Intel disclosed that patches for the four "high-risk" threats would be unavailable until at least August 2018. (Id. (internal quotation marks omitted).)
Plaintiff alleges that Intel continued to promote the security and performance of its processors to investors in various contexts throughout the Class Period without disclosing Spectre and Meltdown. Specifically, plaintiff alleges myriad false and misleading statements in relation to the security and performance of Intel's processors. As pled in the CCAC, plaintiff's securities fraud claim centers on seven categories of statements as set forth in Appendix A hereto. Each category addresses a specific context in which statements were made.
Defendants bring this motion pursuant to Federal Rules of Civil Procedure 8(a), 9(b), and 12(b)(6). In general, Rule 8(a) requires that a complaint contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). A defendant may move to dismiss a complaint for failing to state a claim upon which relief can be granted under Rule 12(b)(6). "Dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1988). All allegations of material fact are taken as true and construed in the light most favorable to the plaintiff. Johnson v. Lucent Techs. Inc., 653 F.3d 1000, 1010 (9th Cir. 2011). To survive a motion to dismiss, "a complaint must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). That requirement is met "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id.
Furthermore, claims for fraud must meet the particularity requirements of Rule 9(b), including "an account of the time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentations." Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (citing Rule 9(b)) (internal quotation marks omitted). However, private securities fraud complaints are subject to the "more exacting pleading requirements" of the PSLRA, which requires that the complaint plead both falsity and scienter with particularity. Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 990 (9th Cir. 2009). "[T]he inference of scienter must be more than merely `reasonable' or `permissible'—it must be cogent and compelling, thus strong in light of other explanations" and a court "must consider plausible, nonculpable explanations for the defendant's conduct[.]" See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324 (2007).
Defendants present nineteen documents in support of their motion to dismiss. For each, they request that the Court take judicial notice thereof, pursuant to Federal Rule of Evidence 201, or incorporate the document by reference.
In Khoja, the Ninth Circuit considered whether the district court had overused the incorporation by reference and judicial notice doctrines in a securities case to dismiss "what would otherwise constitute adequately stated claims at the pleading stage." Khoja, 899 F.3d at 998. The court cautioned that if defendants are permitted to present their own version of the facts at the pleading stage, and district courts accept such facts as true, it would be "near impossible" for even the most aggrieved plaintiff to demonstrate a plausible claim for relief. Id. at 999.
That said, incorporation by reference is a judicial doctrine that prevents plaintiffs from selecting only portions of documents that support their claims, while omitting portions of those very documents that weaken or extinguish their claims. Id. at 1002. Application of the doctrine in a particular case can be tricky. Generally, a court may assume an incorporated document's contents are true for purposes of a motion to dismiss under Rule 12(b)(6). Id. at 1003. It is improper, however, to assume the truth of everything in an incorporated document for the sole purpose of disputing facts stated in a well-pleaded complaint. Id. A defendant may seek to incorporate a document into the complaint if the plaintiff refers extensively to the document or the document forms the basis of the plaintiff's claim. Id. at 1002. The mere mention of the existence of a document, however, is insufficient to incorporate the contents of a document. Id. The Ninth Circuit emphasized that the doctrine must not be used as a tool by defendants to "short-circuit the resolution of a well-pleaded claim." Id.
Judicial notice, on the other hand, is appropriate for "adjudicative fact[s]" that are "not subject to reasonable dispute." Fed. R. Evid. 201(a), (b). The Ninth Circuit has cautioned that simply because a document is susceptible to judicial notice "does not mean that every assertion of fact within that document is judicially noticeable for its truth." Khoja, 899 F.3d at 999.
The Court concludes that it may properly take judicial notice of Exhibit 2, not for the truth of its content, but to "indicate what was in the public realm at the time." Von Saher v. Norton Simon Museum of Art at Pasadena, 592 F.3d 954, 960 (2010) (internal quotation marks omitted); Gerritsen v. Warner Bros. Entm't Inc., 112 F.Supp.3d 1011, 1028 (C.D. Cal. 2015) ("The cases in which courts take judicial notice of newspaper articles and press releases . . . are limited to a narrow set of circumstances . . . e.g., in securities cases for the purpose of showing that particular information was available to the stock market.") (emphasis supplied); see also, e.g., Heliotrope Gen., Inc. v. Ford Motor Co., 189 F.3d 971, 981 n.18 (9th Cir. 1999) (taking judicial notice "that the market was aware of the information contained in news articles submitted by the defendants") (emphasis supplied). This exhibit further meets the standard for admissibility set forth in Federal Rule of Evidence 201(b).
With respect to use of the incorporation by reference doctrine, the Court finds that plaintiff references Exhibits 4 and 10 substantively. Thus, plaintiff does more than merely mention both Exhibit 4 as it is cited in two paragraphs of the CCAC, (see id. ¶¶ 60, 63), and Exhibit 10 as it is quoted or referenced in three paragraphs therein, (see ¶¶ 107, 181, 182). Accordingly, both are incorporated by reference.
As for Amended Exhibit 9, the 2016 Form 10-K, it is not mentioned in the CCAC, nor do plaintiff's claims necessarily depend on it, thus incorporation by reference is not appropriate. However, the Court may properly take judicial notice of Amended Exhibit 9 since SEC filings are routinely subject to judicial notice. See Dreiling v. Am. Exp. Co., 458 F.3d 942, 946 n.2 (9th Cir. 2006). As for Exhibit 17, the Court finds that it is incorporated by reference since plaintiff quotes the webpages extensively and relies on them in support of its claims. (See CCAC ¶¶ 148, 149, 152, 153.)
The remaining documents, namely Exhibits 1, 3, 6-8, 11-16, and 18-19, were not relevant to the Court's analysis. Defendants' requests as to these exhibits are thus
Section 10(b) of the Exchange Act makes it unlawful for any person to "use or employ, in connection with the purchase or sale of any security . . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors." 15 U.S.C. § 78j(b). SEC Rule 10b-5 implements this provision by making it unlawful to "make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading[.]" 17 C.F.R. § 240.10b-5(b). Similarly, under the Exchange Act, any person who "directly or indirectly, controls any person liable under any provision of [the Exchange Act] or any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable . . . ." 15 U.S.C. § 78t(a).
In 1995, Congress enacted the PSLRA, which includes "[e]xacting pleading requirements," as a check against abusive litigation by private parties. Tellabs, 551 U.S. at 313.
To state a claim under Section 10(b), a plaintiff "must show that the defendant made a statement that was `misleading as to a material fact.'" Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 38 (2011) (quoting Basic Inc. v. Levinson, 485 U.S. 224, 238 (1988)) (emphases in original). Under the PSLRA's heightened pleading requirement, to state a Section 10(b) claim, plaintiffs must allege facts sufficient to establish: (i) that the defendant made a material misrepresentation or omission of fact, (ii) with scienter; (iii) a connection between the misrepresentation or omission and the purchase or sale of a security; (iv) reliance on the misrepresentation or omission; (v) loss causation; and (vi) economic loss. Loos v. Immersion Corp., 762 F.3d 880, 886-87 (9th Cir. 2014) (citing Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 341-42 (2005)). Under Rule 9(b), claims alleging fraud are subject to a heightened pleading requirement, which requires that a party "state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b); see supra at 8. With respect to the scienter requirement, the Court must view the allegations as a whole and determine whether plaintiff has raised an inference of scienter that is "cogent and compelling, thus strong in light of other explanations," to satisfy the PSLRA standard. S. Ferry LP, No. 2 v. Killinger, 542 F.3d 776, 784 (9th Cir. 2008) (internal quotation marks omitted). When assessing the allegations holistically, the Court views circumstances that are probative of scienter with a "practical and common-sense perspective." Id.
Here, defendants challenge the sufficiency of the first two elements: material misrepresentation or omission and scienter. Each element is discussed below.
"Materially misleading statements or omissions by a defendant constitute the primary element of a section 10(b) and rule 10b-5 cause of action." In re Immune Response Sec. Litig., 375 F.Supp.2d 983, 1017 (S.D. Cal. 2005) (quoting Marksman Partners, L.P. v. Chantal Pharm. Corp., 927 F.Supp. 1297, 1305 (C.D. Cal. 1996)). To plead this element, a complaint must "identify[] the statements at issue and set[] forth what is false or misleading about the statement and why the statements were false or misleading at the time they were made." In re Rigel Pharm, Inc. Sec. Litig., 697 F.3d 869, 876 (9th Cir. 2012).
With regard to falsity, that element is adequately alleged "when a plaintiff points to [the] defendant's statements that directly contradict what the defendant knew at that time." Khoja, 899 F.3d at 1008 (citing In re Atossa Genetics Inc. Sec. Litig., 868 F.3d 784, 794-96 (9th Cir. 2017)). To plead falsity under the PSLRA, a plaintiff must "specify each statement alleged to have been misleading" and the "reasons why the statement is misleading[.]" 15 U.S.C. § 78u-4(b)(1)(B); Zucco, 552 F.3d at 990-91. A statement is misleading "if it would give a reasonable investor the impression of a state of affairs that differs in a material way from the one that actually exists." Retail Wholesale & Dep't Store Union Local 338 Ret. Fund v. Hewlett-Packard Co., 845 F.3d 1268, 1275 (9th Cir. 2017) (internal quotation marks omitted). To be misleading, a statement must be "capable of objective verification." Or. Pub. Emps. Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598, 606 (9th Cir. 2014). For example, "puffing"—expressing an opinion rather than a knowing false statement of fact—is not misleading. Id.; see also Lloyd v. CVB Fin. Corp., 811 F.3d 1200, 1206-07 (9th Cir. 2016); In re Cutera Sec. Litig., 610 F.3d 1103, 1111 (9th Cir. 2010). Qualitative buzzwords such as "good," "well-regarded," or other "vague statements of optimism" cannot form the basis of a false or misleading statement. Apollo, 774 F.3d at 606 (citing Cutera, 610 F.3d at 1111 ("When valuing corporations, . . . investors do not rely on vague statements of optimism like `good,' `well-regarded,' or other feel good monikers. This mildly optimistic, subjective assessment hardly amounts to a securities violation.")). Indeed, "professional investors, and most amateur investors as well, know how to devalue the optimism of corporate executives[.]" In re VeriFone Sec. Litig., 784 F.Supp. 1471, 1481 (N.D. Cal. 1992), aff'd sub nom., 11 F.3d 865 (9th Cir. 1993).
Even if a statement is not false, it may be misleading if it omits material information. Khoja, 899 F.3d at 1008-09 (citing In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046, 1054 (9th Cir. 2014)). "[A]n omission is material `when there is a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information available.'" Markette v. XOMA Corp., No. 15-cv-03425-HSG, 2017 WL 4310759, at *7 (N.D. Cal. Sept. 28, 2017) (quoting Matrixx, 563 U.S. at 38). But omissions are actionable only where they "make the actual statements misleading": it is not sufficient that an investor "consider the omitted information significant." Id. (internal quotation marks omitted).
Whether a plaintiff alleges an omission or misstatement, an actionable representation must be material. See Cutera, 610 F.3d at 1108 ("Central to a 10b-5 claim is the requirement that a misrepresentation or omission of fact must be material."). For purposes of a 10b-5 claim, "a misrepresentation or omission is material if there is a substantial likelihood that a reasonable investor would have acted differently if the misrepresentation had not been made or the truth had been disclosed." Livid Holdings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 946 (9th Cir. 2005).
Whereas the CCAC points generally to the numerous allegedly false or misleading statements detailed in Appendix A, the parties' briefing has organized the statements into two broad categories, namely statements about (i) chip security and (ii) chip performance. (See, e.g., Opposition to Defendants' Motion to Dismiss Consolidated Complaint ("Opp.") at 11, Dkt. No. 69.) For simplicity, the Court adopts those categories herein and addresses them below.
The majority of the allegedly false and misleading statements plaintiff identifies pertaining to chip security are nonactionable, as they constitute mere puffery or are otherwise non-verifiable "vague statements of optimism." Cutera, 610 F.3d at 1111. Such chip-security statements were marketing statements to the effect that Intel's products offer security-related features that, for example:
The Court finds these constitute vague positive statements which are immaterial as a matter of law. See, e.g., Kelly v. Elec. Arts, Inc., No. 13-cv-05837-SI, 2015 WL 1967233, at *7-8 (N.D. Cal. Apr. 30, 2015) (holding that the term "de-risk," like the word "improved," "signifies making a product better or safer, and is a statement of corporate optimism and a vague assessment of past results"); City of Roseville Emps.' Ret. Sys. v. Sterling Fin. Corp., 47 F.Supp.3d 1205, 1220 (E.D. Wash. 2014) (statement that company was maintaining "safe and sound banking practices" was "too general and would not cause investors to rely upon it"); In re Cisco Sys. Inc. Sec. Litig., No. C 11-1568 SBA, 2013 WL 1402788, at *13 (N.D. Cal. Mar. 29, 2013) (statement that company had a "strong foundation" was found to be "corporate puffery on which no reasonable investor would rely") (internal quotation marks omitted); In re Splash Tech. Holdings., Inc. Sec. Litig., 160 F.Supp.2d 1059, 1077 (N.D. Cal. 2001) (holding that phrases such as "strong," "better than expected," "robust," "well positioned," "solid," and "improved," when used to describe demand, results, and growth strategy, were not actionable as material misrepresentations); see also, e.g., Shemian v. Research in Motion Ltd., No. 11 Civ. 4068(RJS), 2013 WL 1285779, at *20 (S.D.N.Y. Mar. 29, 2013) (defendants' statements regarding "advanced security features" and "very powerful hardware" did not give rise to any duty to disclose), aff'd, 570 F. App'x 32 (2d Cir. 2014). Because the Court cannot quantify these statements for their truth or falsity, they are not actionable.
Those statements that may be "capable of objective verification," however, do not fare any better. Apollo, 774 F.3d at 606. Thus: plaintiff first argues that defendants' statement that Intel's processors were "
Next, plaintiff's reliance on the statement that the security features of Intel's Xeon chips "
Plaintiff's stronger argument is that defendants misled investors by stating that (i) Intel's X-series processors "
Here, plaintiff contends that defendants "spoke directly about security" without disclosing Spectre or Meltdown and that a Section 10(b) claim can be based on failure to provide context. (Opp. at 9.) However, the relevant context undermines plaintiff's allegations of falsity. Specifically, that context includes not only the words and sentences surrounding the challenged phrases, shown above, but also: (i) the marketing setting in which the statements were made;
As with the chip-security statements, many of the allegedly false and misleading statements plaintiff identifies pertaining to chip performance are nonactionable, as they constitute mere puffery or non-verifiable vague statements of optimism. For example, defendants claimed Intel's platforms:
Defendants also promoted the following processor features:
Here, again, the Court finds these types of statements to be vague and immaterial as a matter of law. See, e.g., Lomingkit v. Apollo Educ. Grp. Inc., 275 F.Supp.3d 1139, 1152 n.6 (D. Ariz. 2017) (finding the term "significant enhancement" to be corporate puffery); In re Calpine Corp., 288 F.Supp.2d 1054, 1088 (N.D. Cal. 2003) (holding that words such as "strong," "healthy," and "solid" could not form a basis for the plaintiffs' Exchange Act claims); Splash, 160 F. Supp. 2d at 1077 (finding statements using the words "strong," "robust," "well positioned," "solid" and "improved" to be "vague and nonactionable"); see also, e.g., In re Stratasys Ltd. S'holder Sec. Litig., 864 F.3d 879, 882 (8th Cir. 2017) (company's statements that its printers offered "unmatched speed, reliability, quality, and connectivity" were "vague and nonverifiable").
Further, plaintiff has not alleged that any of the facts contained within any of the other more specific statements were, in fact, inaccurate. Defendants stated, for example, that:
While these claims presumably could be verified, plaintiff fails to plead facts showing the statements were false.
In short, the CCAC does not allege facts to establish that defendants made any materially false or misleading statements.
Because the Court finds that plaintiff has failed to allege any actionable statements or omissions under Section 10(b) and Rule 10b-5, the Court need not address whether plaintiff adequately alleged scienter, despite the Court's concerns regarding the nature and timing of Krzanich's sale of Intel shares. See Reese v. BP Exploration (Alasksa) Inc., 643 F.3d 681, 694 (9th Cir. 2011); see also In re Connetics Corp. Sec. Litig., 542 F.Supp.2d 996, 1012-13 (N.D. Cal. 2008).
Under Section 20(a), "a defendant employee of a corporation who has violated the securities laws will be jointly and severally liable to the plaintiff, as long as the plaintiff demonstrates a primary violation of federal securities law and that the defendant exercised actual power or control over the primary violator." Zucco, 552 F.3d at 990 (internal quotation marks omitted).
In light of the above with regard to plaintiff's Section 10(b) claim, plaintiff's Section 20(a) claim against the individual defendants fails because no predicate claim under Section 10(b) has been stated.
Having failed to allege a materially false or misleading statement, plaintiff's claim under Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder must be dismissed. Moreover, plaintiff's failure to plead a primary violation of Section 10(b) requires the dismissal of the Section 20(a) claim against the individual defendants.
Based upon the foregoing, defendants' motion to dismiss the CCAC is
This Order terminates Docket Number 67.
(Id. ¶ 138.)
(Id. ¶ 142.)
Given the Court's conclusion that none of defendants' statements were materially misleading, plaintiff's theory that defendants had a "duty to disclose Spectre and Meltdown to make their statements about the security and performance features of the Company's processors not misleading" fails. Opp. at 8; see also Matrixx, 563 U.S. at 44 ("Disclosure is required . . . only when necessary to make . . . statements made, in light of the circumstances under which they were made, not misleading.") (internal quotation marks omitted) (alteration in original). Plaintiff's separate argument that Krzanich's trading of Intel stock gave rise to a duty to disclose is foreclosed by settled law. See Opp. at 9-10; see also Anderson v. Abbott Labs., 140 F.Supp.2d 894, 909-10 (N.D. Ill. 2001) ("[T]his is not an insider trading case. An insider's duty to disclose is not transferable to the securities fraud claim against the corporate defendant or the individual defendants.") (internal quotation marks omitted); see also In re Seagate Tech. II Sec. Litig., 843 F.Supp. 1341, 1369-70 (N.D. Cal. 1994) (rejecting the plaintiffs' efforts to establish a "duty to disclose based on the alleged insider trading of two of the individual defendants").
